DCIT, Jaipur V. AMRAPALI JEWELS P LTD., Jaipur

ITA 416/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54317 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 04-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Keywords: Bogus purchase; Rejection of books of accounts; Opportunity of cross examination; Onus to prove

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L. KALRA) ITA NO.416/JP/2011 ASSESSMENT YEAR : 2006-2007 DEPUTY COMMISSIONER OF INCOME TAX VS. M/S. AMRAPA LI JEWELS (P) CIRCLE-2, JAIPUR. M.I. ROAD, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.K. MEENA RESPONDENT BY : SHRI P.C. PARWAL DATE OF HEARING: 29.12.2011 DATE OF PRONOUNCEMENT: 30.12.2011 ORDER PER SHRI N.L. KALRA, A.M. 1. THE REVENUE HAS FILED AN APPEAL AGAINST ORDER OF LD. CIT (A)-1,JJAIPUR DATED 28.02.2011. THE GROUND OF APPEAL IS AS UNDER: WHETHER ON THE FACTS OF THE CASE AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) IS JUSTIFIED IN DELETING THE TRADING ADDITI ON BY RS.16,53,583/- MADE BY THE AO BY DISALLOWING 25% OF UNVERIFIABLE PURCHASES OF RS.66,14,332/- THOUGH THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE I. T. ACT, 1961 WAS UPHELD, WITHOUT CONSIDERING HIS OWN DECISION IN THE CASE OF M/S. NA ND KISHORE MEGHRAJ IN ITA NO.433/JP/2009 AND CONFIRMED BY THE HONBLE ITAT, J AIPUR BENCH, JAIPUR. 2. ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTU RING AND EXPORT OF GOLD & SILVER JEWELLERY PLAIN & STUDDED WITH PRECIOUS & SEMI PREC IOUS STONES, HANDICRAFTS ITEMS ETC. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE DECLARED GOS S PROFIT OF RS.266.63 LACS ON THE TURNOVER OF 2 RS.1763.72 LACS RESULTING INTO GP RATE OF 15.12% AS AGAINST THE GROSS PROFIT OF RS.209.92 LACS ON TURNOVER OF RS.1307.09 LACS GIVING G.P. RATE OF 16. 06% IN THE IMMEDIATELY PRECEDING YEAR. AO MADE THE FOLLOWING OBSERVATIONS:- (I) ASSESSEE FAILED TO FURNISH THE DETAILS OF DAY T O DAY STOCK INVENTORY IN TERMS OF QUANTITY & QUALITY OF VARIOUS ITEMS, IN THE ABSENCE OF WHICH THE STOCK VALUATION IS NOT SUBJECT TO VERIFICATION. (II) OUT OF TOTAL PURCHASES OF RS.10,80,65,557/- PU RCHASES OF RS.66,14,332/- MADE FROM 16 PARTIES AS PER THE DETAILS GIVEN AT PAGE 2 OF THE ASSESSMENT ORDER IS UNVERIFIABLE. 3. THE A.O. IN HIS ORDER HAS MENTIONED THE STATEMEN T OF RAVI HALDIA IN WHICH RAVI HALDIA GAVE THE DETAILS OF NO. OF PARTIES WHICH WERE SUPPL YING BOGUS BILLS. THE ASSESSEE HAS ALSO MADE PURCHASES FROM SUCH PARTIES. 4. THE A.O. HAS REFERRED TO THE STATEMENT OF SH. S. C. LALWANI IN WHICH HE ADMITTED THAT HE & HIS FAMILY MEMBERS ARE ISSUING BILLS ON COMMISSIO N BASIS. 5. ALL THE ABOVE FINDINGS WERE CONFRONTED TO THE AS SESSEE AND THE EXPLAINATION OF THE ASSESSEE WAS ASKED. THE ASSESSEE FILED THE REPLY BU T COULD NOT PRODUCE THE PARTIES FROM WHOM PURCHASES MADE. HENCE THE LD. A.O. REFERRED TO THE DECISION OF HONBLE APEX COURT IN THE CASE OF KANEHWALA GEMS V CIT 288 ITR 10. ACCORDINGLY, THE R EJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY APPLYING PROVISIONS OF SECTION 145(3) & DISALLOWED 25% OF THE ALLEGED UNVERIFIABLE PURCHASES OF RS.66,14,332/- WHICH WORKS OUT TO RS.1 6,53, 583/- BY PLACING RELIANCE IN THE CASE OF M/S. SANJAY OIL CAKE INDUSTRIES VS. CIT 10 DTR 153 (GUJ.) & ON DECISION OF ITAT, AHMADABAD BENCH, IN CASE OF M/S. VIJAY PROTEINS LTD. V/S ACIT 58 ITD 428. 6. CIT (A) UPHELD THE APPLICATION OF PROVISIONS OF SECTION 145(3) BUT REDUCED THE ADDITION TO RS. 1 LACS BY GIVING THE FOLLOWING FINDINGS:- 3 AFTER REJECTION OF BOOKS OF ACCOUNTS, TO ESTIMATE THE GROSS PROFIT, AO CAN RELY UPON THE PAST HISTORY OF THE CASE OR ANY OTHER COMP ARABLE CASE . HONBLE ITAT JAIPUR BENCH IN SIMILAR CASES HAS BEEN CONSISTENTLY APPLYING SUITABLE G.P. RATE AS AGAINST 25% DISALLOWANCE OF UNVERIFIABLE PURCHASE M ADE BY THE AO. FOR APPLYING G.P. RATE PAST HISTORY OF THE CASE IS BEST GUIDE AS HELD IN SEVERAL CASE LAWS. IN THE APPELLANTS CASE THE DECLARED G.P. RATE IS 15.12% O N SALES OF RS. 1763.72 LACS. THE DECLARED G.P. RATE IS SLIGHTLY LOWER THAN 16.06% DE CLARED ON SALES OF RS. 1307.09 LACS IN THE IMMEDIATELY PROCEEDING YEAR. THUS THERE IS A FALL IN G.P. RATE. THE APPELLANT HAS EXPLAINED THE FALL IN G.P. RATE. IN T HE IMMEDIATELY PRECEDING YEAR IN FIRST APPEAL TRADING ADDITION OF RS. 31460/- ONLY W AS CONFIRMED .CONSIDERING THESE FACTS INCLUDING CONSIDERABLE INCREASE IN SALE S THE NOMINAL FALL IN G.P. RATE STANDS EXPLAINED. HOWEVER, AS THE APPELLANT HAS BEE N FOUND INVOLVED IN UNVERIFIABLE PURCHASES, A LUMP SUM ADDITION OF RS. 1 LAC IS HEREBY CONFIRMED. AS A RESULT THE ADDITION OF RS. 16,53,533/- IS REDUCED TO RS. 1 LACS. 7. BEFORE US THE LD. A/R MADE THE FOLLOWING SUBMISS IONS: THE ASSESSEE MAINTAINS DAY TO DAY BOOKS OF ACCOUNTS , WHICH IS SUBJECT TO AUDIT. THESE BOOKS ARE DULY SUPPORTED WITH BILLS & VOUCHER S. ASSESSEE HAS SUBMITTED THE TAX AUDIT REPORT ALONG WITH THE COMPLETE QUANTATIVE /QUALITATIVE DETAILS OF CLOSING STOCK OF RAW MATERIAL AND FINISHED GOODS. THE SAME ALONG WITH THE VALUATION OF STOCK WAS ALSO SUBMITTED DURING THE COURSE OF ASSES SMENT PROCEEDINGS VIDE LETTER DT. 27.10.2008 . AO HAS NOT FOUND ANY DEFECT IN THE VALUATION OF STOCK. ALL THE PURCHASES AND SALES ARE DULY RECORDED IN THE STOCK REGISTER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE FILED MONTH WISE Q UANTITATIVE DETAILS OF STOCK VIDE LETTER DT. 19.12.2008 . NO DEFECT WAS FOUND TH EREIN. THERE IS COMPLETE LINKAGE OF GOODS PURCHASED WITH ITEMS MANUFACTURED & SOLD. ALL THE TRANSACTION OF PURCHASES & SALES IS FULLY VERIFIABLE FROM THE SUPP ORTING BILLS, VOUCHERS & DOCUMENTS MAINTAINED BY ASSESSEE. IN THESE CIRCUMST ANCES, EVEN IF SOME OF THE PURCHASES AS PER THE AO ARE UNVERIFIABLE, THERE CAN NOT BE A DISALLOWANCE OF 25% OF SUCH PURCHASES. IN RESPECT OF ALLEGED UNVERIFIABLE PURCHASES, THE C OMPLETE DETAILS OF 16 PARTIES ALONG WITH THEIR ADDRESS, PAN, SALES TAX REGISTRATI ON NO., CONFIRMATION, COPY OF THE PURCHASE BILLS, MODE OF PAYMENT WAS SUBMITTED D URING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DT. 19.12.2008. THE VARIOUS OBSERVATIONS MADE BY THE LOWER AUTHORITIES IN RESPECT OF THEM IS INCO RRECT AS EXPLAINED UNDER:- IN RESPECT OF THE PURCHASES, THE BURDEN OF PROOF IS NOT THE SAME AS THE BURDEN OF PROOF REQUIRED U/S 68. THERE IS NO LAW REQUIRING TH E ASSESSEE TO PRODUCE THE PARTIES FROM WHOM IT HAS MADE PURCHASES. IF THESE P ARTIES ARE NOT APPEARING BEFORE THE AO IN RESPONSE TO SUMMON U/S 131, THE AO HAS OTHER POWER UNDER THE ACT TO ENFORCE ATTENDANCE. WHY THE DEPARTMENT HAS N OT IMPOSED THE PENALTY ON THEM. ALL THESE PARTIES ARE ASSESSED AT JAIPUR AND THEREFORE HOW THE ASSESSMENT HAS BEEN COMPLETED ON THE ALLEGED NON EXISTING PERS ON. ALL THESE FACTS SHOW THAT 4 SHELTER HAS BEEN GIVEN TO ALL THESE ALLEGED PARTIES . THIS PROVES THAT ALL THE PURCHASES MADE BY THE ASSESSEE WERE GENUINE. THE LOWER AUTHORITIES HAVE NOT ACCEPTED THE PURCHAS ES SIMPLY BECAUSE ASSESSEE COULD NOT PRODUCE THESE PARTIES. IT IS TO BE NOTED THAT BCTT WING AND INVESTIGATION DEPARTMENT CONDUCTED SURVEY AT THE PL ACES OF THESE PARTIES AND THEY WERE FOUND THERE. THIS SHOWS THAT THE OBSERVATION O F THE LOWER AUTHORITIES THAT NO CONCERN WAS TRACED AT THE GIVEN ADDRESS IS WITHOUT ENQUIRY. STATEMENTS OF VARIOUS PERSONS QUOTED AT PAGE 2-6 OF THE ASSESSMENT ORDER CANNOT BE A BASIS FOR HOLDING THAT THE PURCHASES MADE BY T HE ASSESSEE ARE NON GENUINE SINCE IN THESE STATEMENTS NO QUESTION HAS BEEN ASKE D WITH REFERENCE TO THE ASSESSEE. THE PARTIES PROVIDING THE BILLS AS PER TH E STATEMENTS CANT BE UNIVERSALLY APPLIED IN ALL OTHER CASES. ONCE THE AO RELIED ON T HE STATEMENTS, IT IS HIS DUTY TO PROVIDE OPPORTUNITY OF CROSS EXAMINATION TO THE ASS ESSEE. ASSESSEE HAS FURNISHED THE CONFIRMATION OF THE PARTIES FROM WHOM ARE ALLEG ED TO BE THE TAINTED PARTIES BY THE DEPARTMENT . IT IS NOT THE CASE OF THE DEPARTMENT THAT THE PURCH ASE RATE/QTY. OF VARIOUS ITEMS PURCHASED FROM ALLEGED UNVERIFIABLE PARTIES ON DIFF ERENT DATES WAS LESS THAN THE RATE AT WHICH IT WAS PURCHASED ON THAT DATES. A CHA RT COMPARING THE PURCHASES MADE FROM ALLEGED UNVERIFIABLE PARTIES WITH THE PUR CHASES MADE FROM OTHER PARTIES AT NEARBY DATE/QTY./RATE/AMT. IS AT. THEREF ORE, PURCHASES ARE VERIFIABLE WITH REFERENCE TO THE RATE AS WELL AS QUANTITY. THE SE PURCHASES, THEREFORE, CANT BE TREATED AS NON GENUINE/ INFLATED IN THE ABSENCE OF ANY EVIDENCE BROUGHT BY THE AO ON RECORD. EVEN IF BOOKS OF ACCOUNTS ARE REJECTED, INCOME NEED S TO BE ASSESSED IN THE MANNER PROVIDED U/S 144. THIS WOULD REQUIRE TO TAKE INTO C ONSIDERATION ALL THE CIRCUMSTANTIAL FACTS & THE PAST HISTORY. THE POSITI ON OF THE G.P. RATE DECLARED BY THE ASSESSEE AS COMPARED TO EARLIER YEAR IS AS UNDE R:- A.Y. SALES (AMT. IN LACS) GROSS PROFIT (AMT. IN LACS) G.P. RATE (%) 2006-07 1763.72 266.63 15.12 2005-06 1307.09 209.92 16.06 FROM THE ABOVE TABLE, IT CAN BE NOTED THAT THE OVER ALL GROSS PROFIT HAS BEEN INCREASED FROM 209.92 LACS TO 266.63 LACS AS COMPAR ED TO LAST YEAR. FOR THE SLIGHT DECLINE IN THE G.P. RATE OF .94%, THE REASONS WERE EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DT. 09.09.2008 AS UNDER:- INCREASE IN TURNOVER BY 34.93% AS COMPARED TO LAST YEAR WHICH WAS ON ACCOUNT OF SPECIAL DISCOUNTS OFFERED TO BOOST THE SALES AT SHO WROOM IN NEW DELHI WHICH WAS OPENED IN A.Y. 04-05 ONLY. THE DISCOUNT EFFECT ON T OTAL SALES IS 1.56%, I.E. G.P. RATE WOULD BE 16.68% STIFF COMPETITION IN THE JEWELLERY TRADE DISCOUNTS OFFERED TO CLEAR THE OLD DESIGNS WHICH W ERE LYING IN THE STOCK 5 HEAVY FLUCTUATIONS IN GOLD BULLION RATES THE NET PROFIT RATE HAS INCREASED FROM 1.25% TO 1. 36% FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSEE IS INTERESTED IN THE VOLUME OF PROFIT & NOT IN THE RATE OF PROFIT. THUS, WHEN THE AMOUNT OF PROFIT DECLARED BY THE ASSESSEE IS BETTER AS COMPARED TO THE RESULTS DECLA RED IN EARLIER YEARS, DISALLOWANCE OF 25% OF PURCHASES IS UNWARRANTED. IT IS TO BE FURTHER NOTED THAT IN A.Y. 05-06 ALSO, AO DOUBTED THE PURCHASES MADE FROM 7 PARTIES & ACCORDINGLY MADE TRADING ADDITION BY APPLYING G.P. RATE OF 17.27% ON DECLARED TURNOVER INSTEAD OF 16.06% DECLA RED BY THE ASSESSEE. HOWEVER, CIT(A) AFTER CONSIDERING THE REASONS FOR F ALL IN G.P. RATE & THE FACT THAT ALLEGED BOGUS PURCHASES WERE LESS THAN 2% OF T HE TOTAL TURNOVER, DIRECTED THE AO TO APPLY G.P. RATE OF 17.27% ONLY ON SALES CORRE SPONDING TO BOGUS PURCHASES INSTEAD AS RATE APPLIED ON ENTIRE DECLARED TURNOVER . THIS RESULTED INTO AN ADDITION OF RS.31,460/- AS AGAINST RS. 15,87,450/- MADE BY A O. AGAINST THIS, THE DEPARTMENT FILED AN APPEAL BEFORE HONBLE ITAT WHIC H WAS DISMISSED VIDE ITA NO. 1469/JP/2008 DT. 25.02.2009. CONSIDERING THE SA ME, CIT(A) HAS REASONABLY REDUCED THE TRADING ADDITION TO RS. 1 LACS. 8. WE HAVE HEARD BOTH THE PARTIES. THE JAIPUR BENCH IS CONSISTENTLY HOLDING THAT IN CASE THE PURCHASES ARE NOT VERIFIABLE THEN PROVISIONS OF SEC TION 145(3) ARE APPLICABLE. HENCE ONE WILL HAVE TO CONSIDER THE TRADING RESULT AND TO CONSIDER THE COMMISSION WHICH WAS NORMALLY GIVEN OUTSIDE THE BOOKS OF ACCOUNT TO GET BOGUS BILLS. LO OKING TO THE QUANTAM OF BOGUS PURCHASES, CONSIDERING THE ORDER OF TRIBUNAL IN THE CASE OF AS SESSEE FOR EARLIER YEARS, WE FEEL THAT LD. CIT (A) WAS JUSTIFIED IN REDUCING THE ADDITION TO RS.1 LAKH . IN THE RESULT THE APPEAL OF REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN OPEN COURT ON 30.12.201 1 SD/- SD/- (R.K.GUPTA) (N.L.KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER 6 DATED: 30.12.2011 *S.KUMAR* COPY FORWARDED TO:- 1. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2, JAIP UR. 2. M/S. AMRAPALI JEWELS (P) LTD., M.I. ROAD, JAIPUR . 3. THE CIT 4. THE CIT(A), 5. THE D/R, ITAT, JAIPUR 6. THE GUARD FILE IN ITA NO.416/JP/2011 BY ORDER A.R., I.T.A.T., JAIPUR